Employer’s return of remuneration and pensions – you will understand everything you need to know as an owner.
Introduction
The Inland Revenue Department (IRD) issued about 310,000 employer’s returns for the year of assessment 2023-2024, and required the filing done before 2 May 2024.
Who should read this article?
Two types of people should read this article:
- Business owners of Hong Kong companies
- People who want to open a Hong Kong business and are concerned about the workload.
Why should you read this?
It explains a mandatory task for every Hong Kong company; in this case, the employer’s return.
When should you read this?
You should read this at the end of March every year (approximately one month before the deadline). Subscribe here to be alerted for any deadlines for your Hong Kong company (coming soon).
What is the outcome if you read this?
You will:
- Understand what the employer’s return is
- What & When you need to turn it in
- Who can help you in case of time constraints
What are the prerequisites to execute these steps in the article?
The prerequisites are:
- You have a business in Hong Kong (see how to set up a Hong Kong company)
- Maintaining detailed payroll records (see how to maintain detailed payroll records – article coming soon)
1 – Employer’s Return of remuneration and pensions: Understanding the Basics
1.1 – Employer’s Return: What is it, and why is it needed?
The Employer’s Return in Hong Kong, referred to as forms BIR56A and IR56B, is a mandatory filing that reports employees’ salaries and benefits to the Inland Revenue Department (IRD).
This helps the IRD assess the appropriate salary tax.
1.2 – Employer’s Return: Who needs to do it?
Any employer who runs a business in Hong Kong and has employees working in Hong Kong during the financial year is required to file the Employer’s Return annually, regardless of whether the employees are local or foreign, including the director(s).
Important note:
Even if you have a company with no employees, you still have to fill the employer’s return.
1.3 – Employer’s Return: Is it needed for employees/freelancers working outside Hong Kong?
No. The Employer’s Return is not required for employees or contractors who do not provide services in Hong Kong.
1.4 – Employer’s Return: What and when do I need to do it?
You need to:
- Fill in forms: BIR56A (once per company)
- Fill in form: IR56B (once per employee)
This needs to be done before the end of April every year.
1.5 – Employer’s Return: What if I don’t do it?
Failing to file the Employer’s Return can result in penalties and prosecution.
Penalties include:
- Money. Starting from HK$1,200 and up to HK$10,000
- Court summonses and further court fees.
Check this example of a penalty letter for a client who did not file the Employer’s Return on time last year (see the screenshot below).
2 – Employer’s Return of remuneration and pensions: Roadmap and Timeline
Step 1: Receiving forms
- Date: Early April
- Task: Wait for the IRD to send the Empoyer’s return form to your registered office address.
Step 2: Gather Payroll Data
- Date: April 1 to 15
- Task: Compile all relevant employee salary data from last year.
Step 3: Fill Out Forms
- Date: April 15 (Recommended internal deadline for form completion to avoid last-minute issues)
- Task: Complete BIR56A and IR56B(can be ignored if the company didn’t have an employee) for each employee.
Step 4: Submit Forms
- Date: April 30
- Task: Either online through the e-filing system or by mail before the deadline.
3 – Employer’s Return of remuneration and pensions: Outsource it
3.1 – Employer’s Return: Can the work be outsourced?
Yes, the process of preparing and filing the Employer’s Return can be outsourced to accounting firms or payroll service providers.
If you want to receive a quote for your business, please book a free consultation call with Reachtop KSHK CPA. Please include the number of employees and the approximate yearly revenue in your request.
3.2 – Employer’s Return: What part of the work can be outsourced, and how much am I or my employees still involved in the process?
You can outsource the entire process, from data collection to form submission. However, as the employer, you are still responsible for ensuring the accuracy of the information submitted.
3.3 – Employer’s Return: When does outsourcing the work make sense?
Outsourcing is particularly beneficial for businesses without the in-house expertise or resources to handle complex payroll systems. It is also useful for companies looking to ensure compliance while focusing on core business activities.
4 – Employer’s Return of remuneration and pensions: Case Study
Let us give you more context by giving you specific case studies by previous clients.
These case studies illustrate the importance of understanding local tax obligations and the need for precise payroll management, especially in diverse operational setups like remote and local operations.
4.1 – Case Study 1: Foreign-Owned Company Operating Remotely
Company Profile: Employer’s return outsourced? Yes.
- Type: Foreign-owned, Hong Kong-registered company.
- Industry: E-commerce
- Operations: Remote business operations.
- Director/Employee: The director of the company is the sole employee.
- Annual Remuneration: HK$132,000 for the year 2023/24.
- Other Staff: Freelancers and contractors based in the Philippines (not covered under the Employer’s Return).
Timeline and Filing Procedures:
Early April 2024:
The company secretary from Reachtop KSHK CPA receives the forms (BIR56A) by the IRD.
The company secretary then notifies the business owner of receiving the form.
Mid-April 2024:
The company secretary completes the forms:
- BIR56A: one time
- IR56B: one time for the director’s remuneration of HK$132,000
Before May 2, 2024: The company physically signs and submits the form for the Employer’s Return to the IRD.
Implication of the overseas staff:
As the company has no other employees and the freelancers in the Philippines do not provide services in Hong Kong, only the remuneration of the director (who is based in Hong Kong) needs to be reported.
4.2 – Case Study 2: Company with Operations in Hong Kong
Company Profile: Employer’s return outsourced? No.
- Type: Local-based Hong Kong company.
- Operations: Active business operations within Hong Kong.
- Employees: 10 employees working in Hong Kong in 2023/24
Timeline and Filing Procedures:
Early April 2024: Same as in case study 1
April 1-14, 2024:
The business owner gathers all payroll data for the past year, including salaries, bonuses, and other benefits for all 10 employees.
Further reading:
Download this template and fill it in for the payroll data (soon coming)
April 15-22, 2024:
The business owner completes the BIR56A form and each IR56B form. The forms are carefully reviewed to ensure all data are accurately reported.
April 23, 2024:
Final verification of the completed forms by the financial controller.
April 29, 2024:
Submission of all forms through the IRD’s e-Tax filing system to ensure they are received before the May 2 deadline.
Implication of the local staff:
Since all the staff are working in Hong Kong, this company is responsible for reporting the full amount of remuneration paid to each employee during the year 2023/24.
Conclusion and Next Steps
Understanding and fulfilling your obligations for the Employer’s Return is crucial for any business operating in Hong Kong. Consider your business needs, resources, and comfort with the local tax laws to decide whether to handle the process internally or outsource it.
FAQ
1. What is the employer’s return?
It’s an annual filing of employee earnings and benefits to the Hong Kong IRD.
2. How often do I have to do it?
Annually, with forms typically issued in April.
3. Do I have to file the IR56B form for the freelancers working from overseas?
No. The employer’s return does not cover the overseas workers.
4. What is the important deadline to know?
The submission deadline is usually end of April.
5. Do I have to do it as a director?
Yes, if you are remunerated, your information must be included.
6. What do I have to do if I have no employees?
You still need to file the forms of BIR56A when received, indicating no employees.
7. Who can help me if I don’t know how to fill it?
Tax advisors, accountants, or payroll service providers.
